Terex Corp (TEX) 2004 Q2 法說會逐字稿

Good morning my name is Mitch and I will be your conference facilitator today. At this time I would like to welcome everyone to the Terex second quarter 2004 earnings release conference call. All line have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer period. If you would like a ask a question during that time simply press star then the number one on telephone key pad. If you would like to withdrawal your question press star then the number two. Thank you I will now turn the call over to Mr. Ron DeFeo. Mr. DeFeo please begin.

Thank you Mitch and thank you everyone on the call this morning and thanks for you interest in Terex today. With me this morning are Phil Widman, our SVP and CFO and Tom Gelston, Director of IR and Communications in the office here in West Port. On the telephone as well is, Colin Robertson, President of our Terex Construction business, Steve Filipov, our President of Terex Cranes, Bob Wilkerson, President of Terex AWP and Chief Change Officer for the company, and Rick Nichols President of Terex Material Processing and Mining. As is my custom I would like to make some openings comments and then Phil will get into the numbers in some depth. Following this I discuss some specific segment performance and then open it up obviously to your questions.

A replay will be available after the conclusion of this call and can be accessed until Thursday July 29 at 6:00 p.m. eastern time. To access the replay please call 1-800-642-1687 and the conference ID number is 8764961. Also, this information will be available on our web--on our website.

So let me begin. And I think many of you know that I've been at Terex for a number of years. I've been pleased to lead the company and this quarter is clearly one of the best I've been able to participate in. I mention this not because of the financial performance, although it is above expectations, but because it reflects a process of us beginning the maturity that we need to have as a company and the confirmation of the appropriateness of our Terex improvement process journey. Or the TIP journey. We are a long way from our goals but the Terex organization is responding positively to the changes that are underway.

We had a strong quarter. Revenues were up 27%. Operating earnings were up 45% despite absorbing about an $18 million increase in steel cost in the quarter compared with the prior year. The margin improvement part, of our TIP initiative is under way and evident here, earnings per share by any measure was strong by a $1.17 as reported and $1.03 excluding special items and a 93 cents per share on a similar tax rate as last year. and this was 86% above the comparable number of last year. Of particular importance in my view is the fact that we generated $134 million of cash from operations, and net debt decreased $160 million or over $3 per share in the quarter. Gross debt dropped dropped $113 million and subsequent to the quarter and not included in our second quarter operations results we paid off another $50 million of bank debt.

Lastly the $916 million corporate backlog is outstanding up from 125% last year. The Terex improvement process TIP focuses on asset management helped generate our aggressive debt reduction. We sold properties valued at more than $23 million and reduced our overall working capital 7% despite a 28% revenue growth compared with the prior quarter or the first quarter. As a reminder,TIP has seven areas of emphasis; talent development, making Terex a better place to work, making Terex easier to do business with, asset management, margin improvement, marketing, and brand development. These activities today are largely driven locally. These areas are chosen so we can achieve our medium term financial goals of $6 billion of revenue in 2006 or 6 in '06 as we like to say around here, with a 10% operating profit resulting in an earnings per share of $7. This is our goal.

We have also a return on invested capital goal of greater than 20% through the cycle. And those numbers would translate frankly to a number in the 2006 period of closer to over 30%. We are in the early days of a TIP journey, but our people are excited about the changes that are under way. I look forward to covering some of the specifics by segment with you but now Phil will get into a more specific review of the second quarter details. Phil.

Thank you Ron, good morning everyone. Before I begin, let me remind you that we will discuss expectations of future events and performance of the company on today's call. And that expectations are subject to uncertainties related to macroeconomic factors, interest rates, government actions and other factors. A more complete description of the factors that effect future expectations is included in the press release in our other public filings. I encourage you to read them.

For the second quarter Terex reported net income of $59.1 million or $1.17 per share compared to a net loss of 51,800,000 or $1.09 per share which was largely due to the impairment of good will and related restructuring activities in the second quarter of 2003. Excluding the impact of special items net income for the second quarter of 2004 was 52.3 million or $1.03 per share compared to net income of 24.7 million or 50 cents per share for the second quarter of 2003.

Net special item for the second quarter was 6.8 million of net income with the main items including a gain net of tax on the sell of facilities of $13.3 million as Ron mentioned this contributed $23 million of cash benefit in the quarter related to these facility sales. A net charge related to restructuring activities mainly in the Terex Atlas businesses in U.K. and Germany of $6.1 million approximately 4 million of cash related items which will flow as a use in future periods.

Net income related to the settlement of litigation and other issues associated with the O&K acquisition of 3.4 million of income which approximately 6 million of cash benefit in the quarter. Net non-cash loss on the sale of discontinued service parts businesses of $1.8 million and a net non-cash charge of 800,000 related to the write down of certain investments.

Lastly, we had a net non-cash charge of 1.2 million arising from the early retirement of debt mentioned in the quarter. Net sales for the second quarter of 2004 increased 27% over the prior years comparable period to more than $1.3 billion. Strong year-over-year sales growth occurred in Aerial Work platforms mining and construction groups as they all are benefiting from the improving market conditions. Excluding the impact of acquisitions and divestitures, the remaining cranes road building and utility units are relatively flat when compared to the prior year. Second quarter income from operations excluding special items was $87.3 million or 6.5% operating margin comparing to $60 .7 million and 5.8% in 2003.

As we mentioned in our first quarter call we expected steel cost would be a more significant factor in our second quarter results. We estimate that steel cost increases negatively impacted income from operations in the second quarter by approximately $18 million or 1.3 points of operating margin. This was largely felt in the U.S. based manufacturing units and actions implemented to mitigate the future impact through pricing in many of our businesses have not yet had their full effect on the reported results. Although our efforts to coordinate alternative supply arrangements are improving relative availability.

Net currency impact, while it's a significant impact in some of our businesses, it did not significantly impact our overall profitability in the quarter relative to 2003. It was consistent with our first quarter indications of approximately $3 million unfavorable.

Net interest expense decreased $2.5 million in tha second quarter and $5.2 million year to date relative to the comparable periods in 2003 due to our aggressive debt reduction efforts. You will note that our tax rate for second quarter is 19.7% compared to our annual guidance of 28%. This is mainly due to the effect of removing the valuation allowance associated with the Terex Fermec business as its continued profitability and the gain on the sale of the facility demonstrated the viability of the deferred tax assets. While we believe that our annual guidance is appropriate for 2004, effective tax rates tend to fluctuate each quarter based on the differences in the mix of income by jurisdiction, changes in the assumptions on valuation allowances and the impact of statutory reviews. For the second half of 2004 we expect the effective rate to be approximately 36%.

Net income excluding special items in the 2004 period would have been 93 cents per share utilizing a similar tax rate as the prior year. Our expected annual cash taxes should be between 15 and 20 million consistent with our earlier guidance.

Cash flow from operations for the second quarter was $134 million. Ahead of our expectations given the significant level of business activity and the normal seasonal pattern, working capital was reduced by 7% while sales increased by 28% from the first quarter. Working capital as a percentage of second quarter annualized sales was 18% or approximately 66 days comparing favorably to the 21% or 85 days in the second quarter of 2003. We remain focused on our target to end this year at 20% with our 2006 objective to end the year at 15% of working capital to annualized quarterly sales. As part of the Terex improvement process we will note that our efforts to reduce real our estate foot print resulted in $23 million of proceeds in the second quarter. And we made progress in other asset categories as well.

Our net debt for the quarter decreased by 160 million to $808 million and based on the strong cash performance we accelerated the timing of our gross debt reduction. During the second quarter gross debt decreased by $113 million. In July we paid down an additional $50 million in term debt such that our 2004 accumulative gross debt reduction would now be at $149 million. Well on the way to our $200 million objective as we enter the year.

Our net debt to book capitalization at the end of the second quarter was 46.4% versus 50.5% at the end of 2003. Our weighted average interest rate increased in the quarter to 6.64% on total debt, and at the end of the second quarter approximately 53% of our total debt was at fixed rates. And with the July term debt pay down in the start up of a floating to fixed rate swap we will be at 63% fixed rate debt.

Ron back to you.

Thank you Phil. Now I would like to have a brief discuss by operating segment. My comments will be before any special items and relate exactly to the press release.

First Terex Construction. Terex Construction had a strong quarter. Revenues were up 24% and operating profit 49%. This produced an operating margin rate of 6.6% versus 5.5% in the prior year. Obviously this is still well below our 10% margin target but two of the three segments in this group compact equipment and construction -- I'm sorry, cushing and screening were well above the 10% level of operating margins.

The Heavy group suffered primarily from a strong U.K. currency and a disproportionate mix of revenue in dollars. 70% of the revenue from this operation was in U.S. dollars compared with a historical level that's probably in the 40% range. Some continuing important changes are under way in the Heavy area. First as Phil mentioned we are consolidating some Atlas production in Germany. The component plant closure that we implemented has long been on our radar screen but the U.K. plant relocation to Germany is also a very positive move as we upgrade the product and also because we achieved some work concessions throughout our operations in Atlas with Germany. We also have done well with our Terex compact equipment business in Europe in particular. The Mini and Mini-Excavator products had an excellent quarter as did our Mini-wheel Loader product line.

Fuchs a material handler for scrap metal is at full capacity and quite frankly we think this relates directly to steel. It is doing very well. The backlog in the Terex construction business of $216 million is encouraging at this point in the year particularly when compared to a year-ago level of only $89 million.

Moving to Terex Cranes we continue to make solid progress at Terex Cranes worldwide. Revenues were basically flat with year-ago but gross profit improved nearly 2 points and 1 point at at the operating profit line. We sold less used equipment in the Terex Crane business than we did in the prior year and our new equipment sales were up moderately. We continue to struggle somewhat in North American but we do see improvements on the horizon. Terex Demag and Terex Comedil, our tower crane business has done very well in the quarter but we think they can also do better in the subsequent months. It is encouraging to see the Terex crane backlog at $285 million up from $153 million during the last year second quarter end.

Turning to Terex Area Work Platforms. This business had an outstanding quarter. By just about any measure. Revenues were up 42% versus last year and earnings up 54% to $33 million or a 13.9% margin. This business probably had the most supply and steel challenges of our group and they still delivered a fabulous quarter. I think this is a testimony to the strength of the Genie team and to our manufacturing process at this business operation which is something we are moving to try and emulate in several of our other businesses. It is also very interesting to note that the backlog of $115 million for this business was up from only $21 million last year. We expect to have a very good second half of the business--second half of the year in this business.

Turning to Terex Mining. A few comments here revenues at Terex mining were up 32%. But we expect much better progress than this as we look forward. It is encouraging to see our hard work and discipline in this business begin to pay some dividends as operating profit hit 7%, up 1.5 points from the year-ago level. Backlog in this business was up $139 million from only $44 million last year. Right now we are scrambling to keep pace with this demand on both trucks and shovels. Obviously we are benefiting from stronger commodity prices. But we also think that the market has recognized the quality in both our shovels and our trucks and we're quite frankly happy to still be in this business because we think we can deliver some nice performance in the months and years ahead.

Turning to the Terex Road Building, Utility and other businesses. Well, every blue sky has to have a few clouds, and our roadbuilding and utilities businesses are still struggling. Somewhat offsetting this was a solid performance at [Tatra] and in our light construction business. I look at this segment as a big opportunity because company's overall margins are being pulled down by this group. Backlog went up a lot here and went to 170 million from $104 million last year but this came largely from our [Tatra] business and our non-roadbuilding and utility business. We still are seeing somewhat of a soft performance in our backlog from these businesses.

A couple of comments on our Terex improvement process. Many of you have asked me to be specific on the Terex improvement process. Obviously this is challenging because this is as much about a culture shift in our company and a transformation as it is a list of improvement activities, although we have a list of many improvement activities. We are on a mission to make Terex a great company. In addition a great operations company. In addition to our history of being a capable, if you'll allow me that compliment, capable acquirer of businesses. Never the less I'm proud to report that the 7% or nearly $70 million reduction in working capital plus a $23 million performance in property sales during the quarter demonstrates what a focus on asset reduction can do. Our folks did a great job. While Bob Wilkerson is leading the effort make no mistake about this, it is the executive team that owns this process.

I'm also proud to report nearly a full point improvement in our operating margin overall as a company even though steel cost increases as Phil mentioned cost us more than a full margin point. Our folks are doing a good job but there is more opportunities here. This is TIP activity this is a focus on the fundamentals of delivering performance for shareholders, performance for customers and performance for our employees as we seek to be a superior performer in all three of those areas.

Turning to our outlook as you can see from the press release, we have increased our guidance to $2.25 to $2.45 per share or plus 56 to plus 70% compared with a year ago. We remain on track to achieve our medium term goals. Importantly the past 12 months--during the past 12 months we averaged 12.4% return on invested capital or a 1.7 percentage point improvement from the 12 month moving average at the end of the first quarter. We feel this continues to be, if not the best, among the best in our industry. We expect to see increases in this area and we remain committed to continuing our path of cash flow generation and debt reduction. Terex has never been a stronger company but the potential to make this company much stronger and a better performer is still in front of us.

So now I would like to open it up for questions. and please try to only ask one question and then perhaps a follow-up so we can get everyone to participate that's interested. Thank you.

Once again I would like to remind everyone in order ask a question please press star then one on telephone key key pad. We will pause to compile the Q&A roster. First comes from the line of [Mike Kinder] of Citi Group.

Yes Ron, I was wondering you know, obviously you are generating a lot of cash, just wondering if you can talk about acquisitions, when should we start seeing the pace there pick-up, what product lines do you think you are going to focus on?

Well Mike, I think our position on acquisitions haven't changed and don't expect it to change. We have been and continue to look at a variety of things, but frankly the potential that exists within the company is pretty significant and we are less inclined to put that at risk. So we want to make sure whatever acquisitions we do can be accretive within the first year, as we've previously said, and without burdening the company without a tremendous credit risk. So I think there's some things that we can do in the [Bothan] area and we have and will continue to look at other alternatives. But it would have to be awfully attractive for us to make a bold move. Not that we wouldn't consider it but I think we recognize the potential that exists within our existing operations and want to stay focused on that.

Okay thank you.

Your next question comes from Robert McCarthy with Baird.

Morning gentlemen.

Morning.

Ron, in keeping with past practice would you mind giving us a little more incremental color on what you are seeing in you principal crane markets.

Okay. I'll comment and if Steve wants to comment as a follow-up. Go right ahead. I think in general we are seeing the beginning of some positive signs from the North American crane market particularly in the mid sized cranes. Part of the reason for that is frankly some customers have finally gone through the final stages of getting through bankruptcy , chapter 11 proceedings, and I think its been healthy for the market to get some of this behind us.

You're talking about mid sized crawlers Ron?

No I'm talking about rough terrain and truck crane type business. I think that is what is improving first. I don't have the sense that the mid to large size crawlers are strong. But Steve why don't you comment because you're closer to it than I am. Steve.

Maybe we lost him.

Maybe when we get him back you can ask him to follow up with some commentary Ron. My follow-up can you at least speculate or put it in a bread box what kind of impact you think you're going to have to absorb in terms of steel costs in the second half of the year, and let us know wether you are talk about gross or net impact.

Okay I would say to you that our job is to try to offset any impact. P:Perhaps not in the third quarter but on an ongoing basis through pricing actions and potentially other cost reductions. I mean I think it will cost us some things in the second half of the year it's one of the reasons why frankly I think we are being a little bit conservative in our view because how some of our businesses do price their product lines for the full year. But I think by the time we enter 2005 we ought to have the net impact of steel behind us.

Have availability issues been easing?

Availability issues have always been a challenge. And I think they will continue to be a challenge. For a period in time they eased. But we have some concerns they may not ease, they may continue to be a bit tight in certain areas still.

Ron can you hear me now Ron?

Yes I can Steve.

Okay, sorry about that guys. Robert, good morning just to give you a perspective on the crane market. Basically, crawler crane market is very very slow in North America. As Ron said, mid sizes RTs and trucks is slightly up. Not in a big way, basically about 10%. On the AT side Germany is down about 10% and the rest of the markets are basically flat. The far east crawler market is very strong and ATs also continue to be pretty strong.

Good.

Thanks.

Thanks Steve. Thank you Robert.

Next question comes from the line of Joel Tiss with Lehman Brothers.

Good morning guys. This is Actually [Henry Kuran] in for Joel.

Hi Henry.

Question for you on the Fuchs business. You said you were at capacity at this point. Are there any thoughts on adding capacity and if so, how would that affect the margins?

I think there is operational improvements that our team is doing that will improve our ability to produce. But I think we want to be cautious not to add bricks and mortar or anything like that because of course this is a cyclical business. But Colin you've got some things under way to take productions rates up I think don't you?

Yes. Just to put it into perspective our run rate is already up around 50% compared to the same period last year. And in the last quarter we've implemented a second shift as well as some changes to first shift on a significant change to the paint process we have historical prepainted the whole unit and then finished painting the whole unit. We are going to prepaint process because paint was by far, the primary bottleneck so we believe we have probably another 20-30% of potential incremental capacity before physical facilities become the major issue.

Has that affected margins in the business at all?

No, it hasn't at all because for example the paint process change has actually taken people out of the process it's made it a much more efficient process. The relative investment in paint equipment was 10's of 1000's of Euros, it wasn't significant at all.

Okay thanks. I guess my follow up question is in Aerial Work platform segment. We heard yesterday on the the ERI call that the Aerial Work platforms availability is pretty tight, how is that effecting you operationally and are you able to meet the demand right now?

Why don't I let Bob answer that.

Hi Henry, good question. Demand is tight. Our production in Q2 was up 45% over the same period last year. So we haven't been able to expand to meet much of the demand. But it is a good news, bad news situation presently is that there is good demand out there and we're trying to work with all of our customers to match their delivery expectations and needs as we go into the second half of the year.

Is there anything operationally other than that that is going to need to be done?

Well, just to continue expansion of production in various models. It is somewhat model specific as they said yesterday on the call. And we are trying to expand production of certain models at a higher rate than others. But we are working through it and working closely with all of our customers to try to match their short term needs as well as their future needs for the rest of this year and their 2005 plans.

Okay thanks a lot guys.

Again ladies and gentlemen I would like to remind everyone if you would like to ask a .question please press star one on telephone key pad. Next come from [J.J. Garland] with Newburger Burman.

Good morning everyone.

Good morning.

I would just like to ask a question just to focus on the TIP for a moment. The results from asset management this quarter were very encouraging. I'd just like to see--- I appreciate your comments on how you are going to be able to communicate that, but do you expect that over the longer term of the next 2 to 3 years as the TIP process continues to improve Terex operations, that we will be able to communicate to long term investors with the benefits of what that process will be.

You bet J.J.. I think it's incumbent upon us to try to relate our actual performance with the process changes that are under way within Terex. The Terex improvement process is all about continuous improvement. It's all about creating a culture of change within our company that seeks to be the best in everything that we do. I think each one of our operations I would venture a guess to say that, let me say this, the vast majority of our operations is working projects on all 7 of those areas. Those result in a meaningfully different culture within the company. But fundamentally it is based upon trying to have us be the most customer responsive company in our industry, deliver the highest value to our owners and lastly, to be the best place to work in our industry. Making it quantifiable is all about being specific and relating those projects to that process of change. Developing a Terex business system which is repeatable is going to take a substantial amount of time. Bob Wilkerson is working on this process and will lead us through this change. I would say to you this, don't expect that there are miracles where we come in and say we did it this quarter nd it is all about TIP, but rather you should expect us to focus on specific areas and then relate that to the TIP change process. Now Bob, do you want to add anything to that?

Yeah I think it is important J.J. that TIP is a journey as Ron said earlier. So we will be working on both a cultural shift and a transformation of the company. As we move from an integrated operating company across the platform. So, we will be applying best practices and sharing learnings from a diverse group of companies to implement. And a large portion as Ron said, will be done locally. The ultimate answer will be the operating profit line and the financial leverage lines that you'll be seeing.

Thank you very much.

Your welcome.

Gentlemen you have a follow up question from Robert McCarthy.

I'm just curious if you have additional realizable asset sales that could augment cash flow over the balance of the year?

Phil do you want to cover that.

Yes, in fact July 2nd we sold another property for about $7 million in England. We continue to look at reducing our foot print. Excuse me, but I would say most of the real estate realized there may be some more potential this year but not for the same magnitude. We continue to look at used equipment, rental and demo equipment as areas that Bob might refer to as sludge in terms of our asset base and also other areas.

We're so-- we really all could comment on this because every one of the guys in operations has a specific list of assets, things that are working on, things that you know, you look at your asset base and say if I have X million of dollars here is it producing for me what it should be producing so you get rid of that and replace it with something differently that will produce a better result for you. And you know, that level of focus is aggressive and under way. And I wouldn't be bashful to say that the numbers are in the hundreds of millions of dollars in terms of our potential over a period of time.

Alright. Also in terms of the actions that you are taking at Atlas, could you talk a little bit more about specifically what you are doing and what kind of an investment it relates specifically to Atlas, what kind of a payback you expect to get on that over what period of time.

Colin why don't you talk about the activity if you have the payback comment on it I know Phil does as well.

Right okay. Well, Bob, there are two specific projects I'll take the easiest one first. Which was the closure of machining and welding facility that we had in a place called Jarnagin, close to Dreman in Germany. And quite frankly we found suppliers in eastern European countries that is could almost perform, if you like the service close to our material cost. So in the second quarter we announced the closure of [Twan] sold much of the tooling to a third party and we are now basically getting supplied upper frames and chassis at significantly reduced cost from Czech Republic. Second one is a little bit more complex in that Atlas also manufactures cranes in two facilities one in U.K. and one in Delmenhorst, Germany. The Delmenhorst facility is much larger and much more complex. and basically the brains of the organization reside there, it's where the design center is. What we have seen in last couple of years as payload regulations on road going trucks have continued to get tighter and tighter, so I will call it the European design of crane has now really come to the forward in the U.K. market. We would typically have supplied around 1200, 1300 units a year of which a hundred of it would have been out of Germany and 1100 manufactured in the U.K.. In the last 12-18 months we've seen the swing move towards the European type trend. If you then take that and couple that with the changes in working processes that Ron touched on earlier, plus the opportunity to source higher volumes of crane columns and crane daisies in the eastern countries, again supplied into northern Germany, then the basic way of comparing consolidation project and cost reduction project at you know, best case has a pay back of around a year. Worst case around 15 months.

With the total investment of --

Total cash investment, I guess close to $4 million.

Right. That's right. Colin's number isn't including the cash return from sale of facilities which could be a couple million dollars we haven't included that yet because of timing of that.

Yeah it's not defined.

Yeah it's not defined yet.

Okay, thanks guys.

Gentlemen your next question comes from the line of [Tom Klamshaw] with CSFB.

Good morning Tom.

How are you?

Good.

A couple quick ones, on the crane business can you tell us or give us an idea of what the change was in used crane sales year-over-year to sort of feel that out, to see what the organic--with the new crane business is it significant?

It was down about about 10 million year-over-year n the quarter.

Okay. And the increase in that backlog, is that a normal delivery type backlog or is there some end loaded stuff there? Or is that just--should be delivered over the next couple of quarters.

I think it is some bigger more complicated machines that are to be delivered in Asia that will--well coming out of Germany as well as some moderate improvement in our backlog in North America. Is that correct Steve?

Yes Ron, basically tower crane businesses is picking up strongly and the reach stacker business is also picking up a lot in the Middle East.

Yep, I forgot that thanks.

Okay. Your narrative on cranes still continues to be sort of like the market fairly cautious but what the backlog appears to be painting a more positive picture I guess.

Well Tom I think the potential for us to be more positive here is in front of us. We have a backlog. We have a good mix of businesses. We have to get our margins up a little bit. And we'd like to see the health of our customer improve somewhat, for us to be a bit more, ah-- let's put it this way, optimistic about the overall performance here. I don't think anybody's backing off the longer term or medium term prospects of making this business a 10% operating profit business and having it be larger than it is today.

Okay. And on AWP's given the demand there and this huge increase in revenues what is happening on the pricing side what kind of flexibility is there there?

Generally speaking our prices on AWPs are consistent with where they have been. I think you know that this is a business that focuses on major customers that are negotiated at points in time. And we like to live up to our commitments.

Okay. When you look at the increase in revenues, if I am reading this right the gross margins didn't really participate. Part of that is steel I assume?

Yeah about 2 to 3 points is related to steel.

No doubt there is an opportunity for the future. We want to recover that. But at the the same time we have a good business and we have commitments to our customers that we stuck by. But I think now as we look forward we want price to recover our economic change, generally also. Bob that is pretty consistent with your view is it not?

Yes some of the margin compression was mixed as well quarter over quarter. But yeah, we have a long term strategy here and we are building on that not only just this quarter but many quarters ahead. So we are optimistic that -- we're good shape and we're going forward aggressively through the rest of this year and through 2005 as well.

How do you think you did share wise or are you doing share wise?

Yeah, I think we are doing fine share wise. The overall market is a little bit under supplied right now, but we've all been through the rapid increases of demand in the business over previous years and I think everybody is being prudent and cautious. The one thing fundamental to our industry Tom, is our customers must get rates up in the marketplace to increase their returns. So the supply is actually--lack of supply is probably helping a little bit in that endeavor and others in the industry are taking aggressive leadership position, and you've seen some of the numbers come from, that are public, that come out with good rate progress in the market place. So the overall health of our industry is improving.

And I'd just like to add also, that we are interested in returns on investment. We are not interested in building equipment and just having it sit around. We want to use the process we have at Genie that turns our inventory rapidly that allows us to get a decent return and keep our invest appropriate. And that is through the whole balance sheet, receivables as well.

Okay, and Phil, just a quick question. Can you give us what the balance of the term debt was before the July pay down and also the Genie piece if there is still that partial recourse piece out there?

Bank term debt at the end of June was 303 and then I paid 50 in July so 253. I had an outstanding revolver balance of 33, but the term debt was the 303 and 253 numbers. Genie debt is down to about 25-30, 34 sorry.

And that will just eventually just sort of fade away?

That's correct.

Great, thank you gentlemen.

Alright Tom.

Again ladies and gentlemen if you would like to ask a question please press star one on telephone key pad. Your next question comes from the line of [Joseph Vonmeister] with Jefferies and Company.

Just a quick detail on debt issue did you say revolver balance at the end of June was 55 million.

No 33.

33.

Did you have any letters of credit out?

Yes we do approximately 47, 50. Just a second let me give you the exact number -- it is about 45 million.

So you had additional borrowing capacity of about 220 million.

That's right.

Okay great, thanks guys.

Uh huh.

At this time gentlemen there are no additional questions.

Okay terrific. So let me just summarize. I want to thanks everybody for their interest in the company. We appreciate your continued support. We're optimistic about our company and about our chances. We're focused on making Terex a better place, a better performer and a terrific value proposition for all of our customers. So, thank you and everybody I wish a great summer. See you on our next call.

Ladies and gentleman this concludes today's Terex second quarter 2004 earnings release conference. Thank you for your participation. You may now disconnect